9M17 net profit of RM18.7m (+36%) came in within our estimate, and consensus, at 73% and 77%, respectively. No dividend was declared, as expected. No changes in earnings assumption. As such, we keep our Target Price unchanged at RM2.50 but upgrade call to OUTPERFORM based on our rating definitions.

9M17 within expectation. The reported 9M17 net profit of RM18.7m (+36%) is within our and consensus expectations at 73% and 77% of total annual forecasts, respectively. No dividend was declared during this quarter, as expected.

YoY, 9M17 revenue surged by 24% to RM237.2m from the improved sales of existing outlets and contributions from new outlets. Correspondingly, gross profit was higher by 29% to RM88.0m with improved margin of 37% (+1.4pts), from the higher sales in high margin products. Subsequently, PBT was higher by 33% to RM23.6m with improved margin of 10% (+0.7%) even though with higher operating expenses by 27% in tandem with the increased business volume and continuous outlets expansions. Coupled with a lower effective tax rate of 21% (9M16:23%), net profit was higher at 36% to RM18.7m.

QoQ, 3Q17 revenue increased by 3% to RM81.7m from the improved sales of existing outlets and contributions from the new outlets coupled with the Hari Raya Aidilfitri festive season. Correspondingly, gross profit was slightly higher by 1% to RM30.4m with lower margin at 37% (- 0.8pts) due to higher inventory volume for Hari Raya sales. Subsequently, PBT was higher by 5% to RM8.0m. However, improved margin of 10% (+0.2pts) was attributed to lower operating expenses by 4%. Nonetheless, with a higher effective tax rate of 23% (2Q17:18%), net profit was flattish at RM6.2m.

Potential long-term growth to be unlocked. BISON is targeting to open at least c.70 new outlets per year over the next two years from FY17 to FY18 (FY16: 294 stores), translating into organic outlets growth of 24%, which is higher than 7-Eleven’s organic growth of 9%. The expected commissioning of its sub-DC in Johor by end-2017 will facilitate more outlets opening in Johor and Melaka with improvement in delivery time, and reduction in operating expenses. Additionally, with the expected completion of their in-house food-processing facility by end-2018, we believe more high-margin products mix will be available. On the other hand, the new money changing services (Travelex : currently at 3 outlets) and Money Transfer services (Western Union, currently at 2 outlets) are an added value to the outlets, and we foresee a gradual increase of c.3 outlets offering such services per year, subject to BNM’s approval. No changes in earnings assumption. As such, we keep our TP unchanged at RM2.50 based on unchanged PER of 23x against FY18E EPS of 8.3 sen. Upgrade to OUTPERFORM based on our rating definitions.

Source: Kenanga Research - 26 Sept 2017